London’s reviving IPO market

IPO volumes were down heavily for the first nine months of 2016, but they may be about to make a comeback.

US trader
Source: Bloomberg

After the mining sector and the housebuilders, the latest in the ‘2016 remarkable comeback’ series is London IPOs. The area had come to a virtual standstill pre-Brexit, but like so many other things these days it turns out it is possible for companies to list in London despite the vote to leave the EU and all the attendant uncertainty it brings.

Earlier in the year, even before Brexit concerns really took hold, IPO volumes had dropped markedly, owing to a combination of volatile share prices, and some poorly received deals in Europe, like Spain’s Telepizza, and German wind firm Senvion.

As of 13 September, only £1.7 billion had been raised in London IPOs for 2016, compared to £6.75 billion a year earlier. Now that looks set to change. IPO advisers such as investment banks and law firms have been quick to emerge from their shelters in the wake of Brexit, with reports to the press hinting at a very encouraging pipeline for new listings.

Attention over the past week has focused largely on Hollywood Bowl, which is likely to hit a valuation of £240 million, while others such as Premier Asset Management, Krispy Kreme Doughnuts and Misys are all expected to go public in due course. Perhaps the most interesting might be waste disposal firm Biffa, which plans to list in October.

Biffa enjoyed revenues of £927.5 million for its 2016 financial year, with underlying profits of £62.5 million up 27% from a year ago. Having rejected offers from private equity, Biffa has brought forward the timing of its listing from spring 2017 to October 2016, perhaps seeking to take advantage of the post-Brexit lull. A projected valuation of 16 times earnings does not look too demanding given that it has an 8% market share, with the company’s own forecasts suggesting 5% growth in the UK waste market by 2020.

Meanwhile, Hollywood Bowl has enjoyed an increase in adjusted earnings to £20.6 million, up from £11 million a year earlier, so the group would list at around 11.6 times adjusted earnings, again a strikingly undemanding figure.

As to the other big names, GoCompare and o2, the latter has been suggested a number of times before and we have some idea of price given that it was nearly bought by Hong Kong firm Hutchison Holdings for £10.25 billion. However, Telefónica is likely to focus on its flotation of a minority stake in its Telxius infrastructure division first, and as such, we may have a while to wait before o2 comes to market, if it ever does.

GoCompare offers a conundrum, given that suggested valuations are, by necessity, based on eSure’s purchase of half of the business that it did not already own. Comparisons with larger rival Moneysupermarket are tough, given the latter has a broader suite of products. Then again, Saga managed to IPO in May 2014, so there is probably still appetite for an insurance IPO, especially given these offer the chance of a decent yield for investors in these income-straitened times.

Brexit was expected to be a major hurdle for investors and companies, but just like economic data and calls for recession, the fears (for now) have been overdone. Now it is up to the companies themselves to spin the right story to attract investor attention.

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